This is the slowest the GDP has grown since the January-March quarter of 2022 (Q4 FY22).
The moderation in GDP numbers can partly be linked to the fading of pandemic-induced base effects and revision to last year’s growth, Reuters reported, citing economists.
The contraction of 1.1 per cent in India’s manufacturing sector came as a huge disappointment. This is the second straight contraction after Q2, when the manufacturing sector had shrunk by 3.6 per cent, reflecting lower profit margins and weaker exports.
The private consumer spending, which makes up to 60 per cent of the GDP, grew merely by 2.1 per cent as against 8.8 per cent in the previous quarter of FY23.
What do the experts think of the latest GDP data? Will it force the hand of the RBI?
Rahul Bajoria of Barclays says, “The GDP growth number is broadly in line with the Reserve Bank of India‘s estimates, and is unlikely to shift the central bank’s projections materially. Following a set of hawkish minutes [of the RBI’s MPC meeting] and the inflation overshoot in January, we think that the balance of risks has tilted towards another hike. We expect a 25 basis point hike in April with continued dissent in the MPC.”A Nomura report says that the latest GDP data is in line with the RBI’s forecast, therefore, it is unlikely to influence the next policy decision. Yet, Nomura expects a policy pause.
“The upside surprise in January CPI inflation and sticky core inflation seem conducive to making the April meeting a live one for a hike, which is now the consensus base case. We maintain our expectation of a policy pause in April, as we believe the MPC will deem it important to assess the impact of the cumulative hikes delivered thus far before determining the next step,” the report stated.
The RBI has raised its benchmark repo rate by 250 basis points since May last year, and economists expect a further rate hike of 25 basis points to 6.75 per cent in April, which may affect growth in the coming quarters.
Rupa Rege Nitsure, an economist at L&T Financial Holdings, says yet another rate hike would hurt the economy.
“There is a significant deceleration in consumption growth – both for the private and government sectors. A possibility of additional interest rate hikes coupled with a slowdown in overall demand pose a further downside risk to manufacturing activity,” she told Reuters.
Jayanth R Varma, a member of the MPC, has flagged the risks of a further rate hike.
A few days before the latest GDP numbers came out, Varma said that India’s economic growth appeared to be “very fragile”, and it might fall short of what the country needed to meet the aspirations of its growing workforce. He added that monetary tightening was compressing demand.